(Version published in the Hamilton Spectator: February 9, 2024)

Margaret Denton

Canada’s retirement system is built around three pillars: 1) income from government benefits such as the Old Age Security (OAS), Guaranteed Income Supplement (GIS) and Guaranteed Annual Income System (GAINS), 2) Canada Pension Plan (CPP) and 3) voluntary retirement savings plans including employer pension plans, individual retirement savings such as registered retirement savings plans (RRSPs) and tax-free savings account (TFSA) and other investments.  

Retirement investment strategies should consider expected retirement income. John Stapleton, who is an expert on income security, argues that RRSPs are for higher income people who pay taxes.  Lower income individuals might find it difficult to save money that they can contribute to an RRSP, and the tax savings are likely to be lower too because lower income taxpayers pay less tax. Beyond that, however, one must consider the negative effect that income from an RRSP or registered retirement income fund (RRIF) can have in retirement. RRSP’s reduce taxable income while working and defer taxes to retirement when the individual will be taxed at a lower rate (in theory).  At age 71 RRSPs are converted into a RRIF and a minimum amount must be withdrawn from the RRIF each year.  The minimum amount is a legally prescribed percentage of the amount in the RRIF.  The amounts withdrawn are taxable as ordinary income.

Contributing to RRSPs is attractive to people in their mid-life when incomes tend to be higher, but paying less tax while working may mean paying more tax later. Withdrawals from RRSPs or RRIFs are added to taxable income, which, depending on income, can result in OAS being clawed back.  If net income exceeds a threshold amount ($90,997 for 2024), one must repay part or all of the OAS.

Saving in a TFSA is a good way to save for all income levels.  Contributions to a TFSA are not tax deductible (unlike contributions to an RRSP), but TFSA withdrawals are not taxable and do not reduce old age benefits.

At what age should the CPP be taken?  That depends on anticipated life expectancy, among other things. CPP benefits depend on different factors, such as average earnings throughout working life, how much and for how long contributions were made to the CPP and the age benefits are taken.  The highest amount of CPP benefit will be paid for those who delay taking CPP until age 70.   Since the average life expectancy of a 60-year-old in Canada is about 25 years, experts suggest that 65 might be the best age to take benefits. The average monthly amount paid for a new retirement pension (at age 65) in October 2023 was $758. The maximum monthly amount you could receive in 2024 is $1,365.

For those who choose to retire early, it is possible to start receiving CPP benefits before age 65. This will result in a smaller monthly payment which can help meet immediate needs, especially for those who have little or no other income. CPP benefits decrease by about 7% for each year before 65 that one elects to start receiving benefits. The maximum reduction is 42%, if you start collecting at age 60.  Estimates of monthly CPP payments are available by signing in to your My Service Canada Account.

Another strategy to reduce taxable income in retirement is through pension sharing. Pension income may be shared with lower-income spouse/common-law partners. Pension sharing can lower taxes in retirement by decreasing the taxable income of a partner that is subject to higher rates of tax. This may also help to limit the OAS claw back.

There are several tax credits for seniors that are available depending on the situation including: deductions for medical expenses, the age amount, the pension income credit, the disability tax credit, the home accessibility tax credit and province-specific tax credits.

No matter your income level, planning for financial well-being in retirement is complicated and should be considered long before retirement age. How savings are invested has significant implications for financial well-being in old age.


Margaret Denton is on the Board of the Hamilton Council on Aging and is also Professor Emeritus in the Department of Health and Aging at McMaster University. For more information or to donate to the Hamilton Council on Aging please visit www.hamiltoncoa.com.